CoreLogic’s latest Single-Family Rent Index (SFRI), which analyzes single-family rent (SFR) price changes nationally and across major metropolitan areas, showed a national rent increase of 6.6% year-over-year in May 2021, up from a 1.7% year-over-year increase in May 2020.
The shift in consumer preferences toward lower-density communities and single-family shelter continues to cause a ripple effect in the rental market, with SFR growth reaching its highest level since at least January 2005 in May. Due to high purchase prices and ongoing limited availability of for-sale properties, would-be first-time buyers are opting to remain renters instead of entering the housing market. However, similar inventory and affordability challenges are also emerging in the rental space. For the Q1 of 2021, the U.S Census Bureau reported that SFRs averaged 94.5% occupancy, up from 93.7% one year earlier, which has continued to drive up rent prices.
Bidding wars still loom, as all-cash sales are ruling the day, according to a recent report by Redfin. The study found that 30% of U.S. home purchases this year were paid for with all-cash, up from 25.3% during all of 2020, and representing the largest share since 2014, when 30.6% of homes were purchased in all-cash transactions.
Inventory challenges have been stoked again, as construction materials for contractors remain in short supply. The Associated General Contractors of America (AGC), price increases across a wide range of goods and services used in construction pushed up contractors’ costs by a 26.3% year-over-year from June 2020 to June 2021. The National Association of Home Builders (NAHB) has found that changes in prices for softwood lumber products that occurred between April 17, 2020 and July 8, 2021 have added $29,833 to the price of an average new single-family home, and $9,990 to the market value of an average new multifamily home.
“Single-family rents rose by nearly four times the rate from a year earlier in May 2021,” said Molly Boesel, Principal Economist at CoreLogic. “Strong job and income growth, as well as fierce competition for for-sale housing, is fueling demand for single-family rentals. Looking ahead, these market forces are expected to remain for much of the year and keep rent increases high, particularly in urban areas and tech hubs as more people return to working in person.”
CoreLogic examined four tiers of rental prices. National single-family rent growth across the four tiers, and the year-over-year changes, were as follows:
- Lower-priced (75% or less than the regional median): 4.6%, up from 2.7% in May 2020
- Lower-middle priced (75% to 100% of the regional median): 5.8%, up from 2.0% in May 2020
- Higher-middle priced (100% to 125% of the regional median): 6.2%, up from 1.7% in May 2020
- Higher-priced (125% or more than the regional median): 7.9%, up from 1.3% in May 2020
Among the 20 metro areas, Phoenix, Arizona had the highest year-over-year increase in SFRs in May 2021 at 14%. Tucson, Arizona, had the second-highest rent price growth with a gain of 11.1%. Some tourist destinations that were hard-hit by the pandemic are also showing strong signs of recovery, with Las Vegas logging the third-highest year-over-year rent growth at 10.7%, and while Boston has experienced the largest decrease in 20 metros’ rent prices for 11 consecutive months now (with an annual decline of 4.5% in May) the area’s rate of decline is slowing compared to previous months.